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Canadian Inflation Rises Further

James Boston
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Canadian Inflation Rises Further

The Bank of Canada’s (BoC) stated inflation target is stated as being the ‘center of a range between 1% and 3%’, in reality this means 2% but with the caveat that the Bank will not become too concerned if the rate fluctuates above or below this 2% level so long as they feel the move is only short term in nature. Hence today’s inflation data will not be of significant concern to the BoC Governors.

According to figures just published, June’s reading of the Canadian inflation rate is 2.4% on a year on year basis, this represents a slight increase on the May reading of 2.3% but market analysts were anticipating this rise to 2.4%. Month on month the inflation rate is running at 0.1% compared to a 0.5% reading in May and a consensus estimate of just 0.17%. The Core inflation number is slightly more subdued and has just been announced as 1.8% year on year for June compared to 1.7% in May, there was no expectation of a move away from this 1.7% level in the most recent figures.

Whereas the BoC may be comfortable with the level of price growth currently in the Canadian economy it is likely to be developing some concern around the level of the Canadian Dollar. The weakness in the Canadian currency had been providing a boost to export lead growth over the latter half of last year and early this year, however as the prospects for the Canadian economy have increased so too has demand for the currency and this is leading to some competitiveness problems for Canadian exporters. For now this problem is being partially offset by the strength in the US economy and consequent demand for Canadian exports however predictions are for a continued appreciation of the Canadian Dollar and this will, with the probable exception of energy, encourage US buyers to look for better valued imports.

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